Today Banco Santander, Spain’s largest financial institution, announced that it would raise €7.2 billion of capital by issuing 1,598,811,880 new ordinary shares at a price of €4.50 per share in an underwritten rights offering, “with pre-emptive subscription rights for current shareholders.” Emilio Botín, Chairman of Banco Santander, noted that the rights issuance would “further strengthen” Banco Santander’s capital. It appears the new capital will be obtained solely from existing shareholders and other private investors, and not from the Spanish government under its recently announced bank recapitalization program.

The move came as a surprise to the market, as Santander had previously indicated it expected to increase capital ratios on a more leisurely time frame. Also, the price set for the rights offering represents a 46% discount to Santander's closing price yesterday. In the proposed offering, current Banco Santander shareholders “will be able to subscribe to one new share for each four that they hold,” at €4.50 per share. Investors who wish to participate in the offering “will have to purchase four subscription rights for each share they wish to acquire.”

Last month Banco Santander announced an agreement to acquire the remaining outstanding interest in Sovereign Bancorp Inc., parent of the third largest U.S. federal savings bank. This year, Banco Santander has also acquired Alliance & Leicester plc and a portion of Bradford & Bingley plc.